A 57-story office tower in Chicago has gone up for sale in what could be the latest big price reset in the Loop business district.
Owners of the approximately 1.44 million-square-foot tower at 70 W. Madison St. have hired CBRE brokers to find a buyer, according to marketing materials from the brokerage.
The 43-year-old tower is just 68% leased, according to CBRE. Combined with historically low office demand throughout the country and rising interest rates that have driven down sale prices, that means the Madison Street building is likely to sell far below the $374.6 million that investors led by Chicago-based firm Hearn paid in August 2014.
Downtown Chicago’s leasing and property sales markets were soaring at the time of the 2014 deal. But in 2023, sales volume and per-square-foot pricing plunged in a year dominated by distressed deals, according to a CoStar analysis.
A sale price for 70 W. Madison is likely to fall far short of the $305 million that Hearn, Chicago-based GEM Realty Capital and San Francisco-based Farallon Capital Management borrowed from Bank of America in a 2018 refinancing, according to people familiar with the property.
That helped fund upgrades to amenities in the building. There has been more than $53 million invested in lobby facades and entrances, conference and fitness centers, and other amenities, according to the CBRE materials.
Those upgrades were completed ahead of the pandemic that began in early 2020 and led to remote and hybrid work patterns that persist today, causing many companies to reduce their office space.
Poor demand has led to steep discounts on sales of office towers, including Chicago investor R2’s recently completed $60 million purchase of a well-known, 41-story building at 150 N. Michigan Ave. That building’s previous sale price was $121 million in 2017.
R2’s deal ended a year-and-a-half drought of major Chicago office building sales of $50 million or more.
During that time, properties hitting the market typically have been lender-driven sales with expected prices far below the remaining debt. That differs from boom cycles when market activity is dominated by property owners looking to cash in on high demand from investors.
CBRE brokers are emphasizing the property’s proximity to the James R. Thompson Center, a spaceship-like, Helmut Jahn-designed building that Google plans to redevelop and eventually own and occupy with thousands of workers.
The brokers also are playing up the chance to capture new leasing activity as many longtime property owners struggle to fund new deals as property values fall.
It’s unclear whether Bank of America is offering financing to potential buyers, as some lenders have done — including MetLife Investment Management providing seller financing to R2 in the 150 N. Michigan deal — to try to minimize their losses on outstanding loans.
Hearn and Bank of America declined to comment to CoStar News. The other two property owners did not immediately respond to requests for comment.
Large tenants at 70 W. Madison include Canadian bank CIBC and law firms K&L Gates and Nixon Peabody, according to CoStar data.
There is a weighted average lease term of 5.4 years, according to CBRE.
Hearn has owned several well-known Chicago office buildings in recent decades, including its current ownership of the office portion of the 100-story former John Hancock Center at 875 N. Michigan Ave.
For the Record
The sellers are represented by CBRE brokers David Knapp, Blake Johnson, Arthur Johnson and John Saletta.